2022 Review
The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) gained 6.56% in July, attaining its 6th best single month return since its inception. The 5 better months than July 2022 were: October 2015 +7.33%, June 2019 +7.11%, April 2020 +10.27%, November 2020 +11.96% and March 2021 +7.64%. This month is thus far looking good, as the exchange-traded fund (“ETF”) is up 2.33% through August 25th. But even with the gain this month, NOBL is on pace to lock in its worst 8-month start to a year. The prior worst 8-month return was in 2015 with the ETF being down 3.55% after August. In order to catch up to that return, we would need to see a gain of about 0.88% in the next 4 trading days. Since inception, the ETF continues to enjoy a strong 11.14% annualized rate of return.
Not all of the dividend aristocrats are off to a poor start this year; 31 dividend aristocrats are beating NOBL through July and 22 have positive returns on the year. Here are the best-performing aristocrats in 2022 (through July).
- Exxon (XOM) +61.81%
- Chevron (CVX) +42.23%
- Archer-Daniels-Midland (ADM) +23.63%
- Nucor (NUE) +19.91%
- Consolidated Edison (ED) +18.45%
- Cardinal Health (CAH) +17.79%
- Atmos Energy (ATO) +17.32%
- Genuine Parts Company (GPC) +10.56%
- General Dynamics (GD) +10.53%
- Coca-Cola (KO) +10.01%
- Sysco (SYY) +9.97%
- Amcor plc (AMCR) +9.95%
- AbbVie (ABBV) +9.07%
- Realty Income (O) +5.96%
- Grainger (GWW) +5.63%
- Albemarle (ALB) +4.89%
- Johnson & Johnson (JNJ) +3.32%
- Hormel (HRL) +2.69%
- Brown Forman Corp. (BF.B) +2.45%
- Pepsi (PEP) +2.08%
- International Business Machines (IBM) +0.26%
- Becton, Dickinson (BDX) +0.25%
The S&P 500, as measured by SPY, gained 4.55% in July and is up 0.30% in August thus far (through 8/25). NOBL continues to outpace SPY this year with a year-to-date loss through 8/25 of 4.38% versus a loss of 16.08%. The dividend aristocrat ETF has beaten SPY for each of the last 7 months and this trend looks to continue in August. The dividend aristocrats are not known to consistently beat the S&P 500 index, in fact, the dividend aristocrat index underperformed the S&P 500 index for 6 out of the last 7 full calendar years.
However, if you look further back in history, the dividend aristocrat index is outperforming the S&P 500 index by about 1.62% per year between 1990 and 2021. A significant portion of this long-term outperformance is attributable to the dot com bubble and the financial crisis as well as the immediate years following each market crash. This pattern was broken with the 2020 market crash, perhaps the much shorter duration of the crash and recovery are the reason. The dot com bubble and the financial crisis both extended for multiple years while the 2020 market crash was fully recovered in a matter of months.
Even though the dividend aristocrats have trailed the S&P for the better part of the last 7 years, long-term investors can rest assured that based on history, over a much longer time period, the dividend aristocrats can hold their own. There are currently 64 companies in the dividend aristocrat index but strong historical returns for the index can be attributed to only a handful of them. As an investor, I am always curious how to identify these drivers of outperformance.
I want to present 3 strategies that theoretically could identify winning aristocrats and lead to better performance than the dividend aristocrat index. These strategies work best with a buy and hold long term investing approach as will be evidenced by the results. They are based on quantitative models that do not consider qualitative data, therefore it is prudent that further due diligence is performed on all chosen stocks.
The Most Undervalued Strategy
Strategy number 1 is a focus on valuation and more specifically it targets the potentially most undervalued dividend aristocrats. In theory, this is a long-term strategy since it may take some time to fully see the reward of leveraging a valuation approach. My preferred method for valuation is dividend yield theory, mainly for its simplicity. Unlike other valuation methods, dividend yield theory does not require making assumptions aside from assuming that a given stock will revert back to its long-term trailing dividend yield.
This valuation technique works best for mature businesses with long histories of dividend growth, making the dividend aristocrats an ideal pool of companies to value using this technique.
Selecting the 10 most undervalued dividend aristocrats each month and adopting a buy and hold investing approach can lead to long-term outperformance when/if the targeted stocks return to fair valuation. It may take a few months or even years to see if this strategy actually pays off. I predict that it will underperform NOBL for the first few months while we wait for bargain stocks to return to fair value.
|
Month |
Most Undervalued |
NOBL |
SPY |
|
Aug 21 |
0.49% |
1.87% |
2.98% |
|
Sep 21 |
-2.99% |
-5.69% |
-4.66% |
|
Oct 21 |
3.63% |
5.95% |
7.02% |
|
Nov 21 |
-2.19% |
-1.76% |
-0.80% |
|
Dec 21 |
10.37% |
6.54% |
4.63% |
|
Jan 22 |
1.04% |
-4.08% |
-5.27% |
|
Feb 22 |
-1.94% |
-2.59% |
-2.95% |
|
Mar 22 |
3.40% |
3.86% |
3.76% |
|
Apr 22 |
-2.14% |
-3.42% |
-8.78% |
|
May 22 |
3.11% |
0.31% |
0.23% |
|
Jun 22 |
-7.30% |
-6.73% |
-8.25% |
|
Jul 22 |
5.00% |
6.56% |
4.55% |
|
Aug 22 |
1.09% |
2.33% |
0.30% |
|
2021 Partial |
9.05% |
6.54% |
9.06% |
|
2022 YTD |
1.71% |
-4.38% |
-16.08% |
|
TOTAL |
10.91% |
1.87% |
-8.48% |
|
Alpha over NOBL |
9.05% |
||
|
Alpha over SPY |
19.40% |
The table above shows the monthly and annual returns for the buy-and-hold portfolio of the most undervalued strategy.
The portfolio finished July with a gain of 5.0%, losing to NOBL by 1.56% but beating SPY by 0.55%. Through August 25th the portfolio has a return of 1.09% and is trailing NOBL but again beating SPY. As a result, the portfolio, is giving up some more alpha this month to NOBL. However, on a year-to-date basis, the portfolio is still outperforming NOBL by 6.09% and SPY by 17.79%. Since inception this portfolio has generated 9.05% of alpha over NOBL and 19.40% of alpha over SPY. The partial August 2022 return is the first month of the second year for this strategy, in next months update I will likely add an annualized rate of return.
The portfolio consists of 29 unique present and former dividend aristocrats. I track this portfolio by investing $1,000 each month equally split among the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock. Here are all of the positions, the current market value, capital invested, total return and allocation as of August 25th.
|
TICKER |
MARKET VALUE |
CAPITAL INVESTED |
TOTAL RETURN |
CURRENT ALLOCATION |
|
ABBV |
135.86 |
100 |
35.86% |
0.99% |
|
AFL |
324.88 |
300 |
8.29% |
2.37% |
|
AMCR |
336.34 |
300 |
12.11% |
2.46% |
|
AOS |
208.16 |
200 |
4.08% |
1.52% |
|
APD |
109.69 |
100 |
9.69% |
0.80% |
|
ATO |
972.07 |
800 |
21.51% |
7.10% |
|
BDX |
113.54 |
100 |
13.54% |
0.83% |
|
BEN |
721.99 |
700 |
3.14% |
5.28% |
|
CAH |
575.35 |
400 |
43.84% |
4.20% |
|
CLX |
1,266.67 |
1300 |
-2.56% |
9.26% |
|
CVX |
511.66 |
300 |
70.55% |
3.74% |
|
ECL |
615.36 |
600 |
2.56% |
4.50% |
|
ED |
552.07 |
400 |
38.02% |
4.03% |
|
GD |
246.94 |
200 |
23.47% |
1.80% |
|
HRL |
827.34 |
700 |
18.19% |
6.05% |
|
IBM |
227.91 |
200 |
13.96% |
1.67% |
|
KMB |
108.88 |
100 |
8.88% |
0.80% |
|
LEG |
99.71 |
100 |
-0.29% |
0.73% |
|
LOW |
232.74 |
200 |
16.37% |
1.70% |
|
MDT |
471.75 |
500 |
-5.65% |
3.45% |
|
MKC |
112.33 |
100 |
12.33% |
0.82% |
|
MMM |
770.87 |
800 |
-3.64% |
5.63% |
|
PPG |
205.04 |
200 |
2.52% |
1.50% |
|
SWK |
416.94 |
500 |
-16.61% |
3.05% |
|
T |
697.79 |
700 |
-0.32% |
5.10% |
|
TROW |
591.75 |
600 |
-1.38% |
4.32% |
|
VFC |
787.54 |
1000 |
-21.25% |
5.75% |
|
WBA |
1,075.13 |
1300 |
-17.30% |
7.86% |
|
XOM |
369.18 |
200 |
84.59% |
2.70% |
|
TOTAL |
13,685.48 |
5.27% |
Here are the 10 most undervalued dividend aristocrats chosen for the month of September. The table below shows potential undervaluation (column Valuation) for each of the 10 chosen aristocrats. The data is from August 25th so the current dividend yield may differ slightly from the stated yield.
Created by Author
The Fastest Expected Growth Strategy
Strategy number 2 is a focus on dividend aristocrats that are expected to grow the fastest in the near future. Historically, there has been a correlation between earnings per share growth and share price appreciation. Companies that have grown their earnings faster have also seen higher total returns. One way to gauge how fast earnings for a company will grow is to leverage analyst forecasts. For this strategy, I decided to use a discounted five-year EPS growth forecast combined with a return to fair valuation and the dividend yield to identify the 10 best aristocrats poised for the best total return in the future.
|
Month |
Fastest Growth |
NOBL |
|
Aug 21 |
5.12% |
1.87% |
|
Sep 21 |
-4.42% |
-5.69% |
|
Oct 21 |
5.92% |
5.95% |
|
Nov 21 |
-2.06% |
-1.76% |
|
Dec 21 |
7.09% |
6.54% |
|
Jan 22 |
-4.42% |
-4.08% |
|
Feb 22 |
-0.10% |
-2.59% |
|
Mar 22 |
3.71% |
3.86% |
|
Apr 22 |
-2.19% |
-3.42% |
|
May 22 |
0.12% |
0.31% |
|
Jun 22 |
-8.94% |
-6.73% |
|
Jul 22 |
6.09% |
6.56% |
|
Aug 22 |
3.33% |
2.33% |
|
2021 Partial |
11.62% |
6.54% |
|
2022 YTD |
-3.20% |
-4.38% |
|
TOTAL |
8.05% |
1.87% |
|
Alpha over NOBL |
6.18% |
|
|
Alpha over SPY |
16.53% |
The table above shows the monthly and annual returns for the buy-and-hold portfolio of the fastest expected growth strategy.
The portfolio finished July with a gain of 6.09%, underperforming NOBL by 0.47% but beating SPY by 1.54%. Through August 25th the portfolio is up 3.33%, beating NOBL by 1.00% and SPY by 3.03%. The portfolio has started to see stronger performance recently and is making up ground lost earlier this year. It remains ahead of NOBL and SPY on a year-to-date basis with a loss of 3.2% compared to a loss of 4.38% and 16.08% for NOBL and SPY respectively. Since inception, this portfolio has generated 6.18% of alpha over NOBL and 16.53% of alpha over SPY.
The portfolio consists of 22 unique present and former dividend aristocrats, 3 new aristocrats were added to the portfolio in August. I track this portfolio by investing $1,000 each month equally split amongst the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock. People’s United (PBCT) was removed from the portfolio in April as the company was acquired by M&T Bank (MTB), the value of the position was reinvested equally amongst the 10 chosen aristocrats for April. Here are all of the positions, the current market value, capital invested, total return and allocation as of August 25th.
|
TICKER |
MARKET VALUE |
CAPITAL INVESTED |
TOTAL RETURN |
CURRENT ALLOCATION |
|
ALB |
780.99 |
600 |
30.17% |
5.86% |
|
APD |
108.05 |
100 |
8.05% |
0.81% |
|
CAT |
1,112.86 |
1100 |
1.17% |
8.35% |
|
CB |
1,071.31 |
1000 |
7.13% |
8.03% |
|
CVX |
100.51 |
100 |
0.51% |
0.75% |
|
ECL |
667.39 |
700 |
-4.66% |
5.00% |
|
IBM |
1,089.73 |
1000 |
8.97% |
8.17% |
|
ITW |
195.12 |
200 |
-2.44% |
1.46% |
|
LIN |
274.95 |
300 |
-8.35% |
2.06% |
|
LOW |
625.48 |
600 |
4.25% |
4.69% |
|
MCD |
752.44 |
700 |
7.49% |
5.64% |
|
MDT |
292.54 |
300 |
-2.49% |
2.19% |
|
MMM |
318.44 |
300 |
6.15% |
2.39% |
|
NUE |
1,544.36 |
1200 |
28.70% |
11.58% |
|
PPG |
520.09 |
500 |
4.02% |
3.90% |
|
PBCT |
200 |
-100.00% |
0.00% |
|
|
SWK |
391.76 |
500 |
-21.65% |
2.94% |
|
SYY |
1,448.04 |
1300 |
11.39% |
10.86% |
|
T |
98.03 |
100 |
-1.97% |
0.74% |
|
TGT |
221.12 |
200 |
10.56% |
1.66% |
|
TROW |
613.22 |
600 |
2.20% |
4.60% |
|
VFC |
1,006.14 |
1300 |
-22.60% |
7.55% |
|
XOM |
102.23 |
100 |
2.23% |
0.77% |
|
TOTAL |
13,334.81 |
2.58% |
Here are the 10 dividend aristocrats poised for the best total return right now. The table below shows the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats. The data is from August 25th so the current dividend yield may differ slightly from the stated yield.
Created by Author
The Blended Strategy
Strategy 3 is a blend of the first two strategies, with a focus on the fastest expected growth but applied only to undervalued aristocrats. A blend of undervaluation and expected growth could narrow down the best aristocrats between the two strategies. The most undervalued aristocrats may not necessarily be poised for the fastest growth. Additionally targeting only undervalued aristocrats can offer a margin of safety in that securities are purchased for fair or better prices.
|
Month |
Blended |
NOBL |
SPY |
|
Aug 21 |
2.64% |
1.87% |
2.98% |
|
Sep 21 |
-3.42% |
-5.69% |
-4.66% |
|
Oct 21 |
2.70% |
5.95% |
7.02% |
|
Nov 21 |
-2.56% |
-1.76% |
-0.80% |
|
Dec 21 |
12.04% |
6.54% |
4.63% |
|
Jan 22 |
-0.71% |
-4.08% |
-5.27% |
|
Feb 22 |
0.59% |
-2.59% |
-2.95% |
|
Mar 22 |
3.39% |
3.86% |
3.76% |
|
Apr 22 |
-7.00% |
-3.42% |
-8.78% |
|
May 22 |
1.28% |
0.31% |
0.23% |
|
Jun 22 |
-6.23% |
-6.73% |
-8.25% |
|
Jul 22 |
4.56% |
6.56% |
4.55% |
|
Aug 22 |
1.76% |
2.33% |
0.30% |
|
2021 Partial |
11.15% |
6.54% |
9.06% |
|
2022 YTD |
-2.96% |
-4.38% |
-16.08% |
|
TOTAL |
7.86% |
1.87% |
-8.48% |
|
Alpha over NOBL |
5.99% |
||
|
Alpha over SPY |
16.34% |
The table above shows the monthly and annual returns for the buy-and-hold portfolio of the fastest expected growth strategy.
The portfolio gained 4.56% in July, trailing NOBL by 2.00% and beating SPY by 0.01%. Through August 25th the portfolio is up 1.76% and is trailing NOBL by 0.57% but beating SPY by 1.46%. Year-to-date the portfolio is down 2.96% which is better than NOBL, down 4.38%, and SPY, down 16.08%. Since inception this portfolio has generated alpha of 5.99% over NOBL and 16.34% over SPY.
The portfolio consists of 29 unique present and former dividend aristocrats. I track this portfolio by investing $1,000 each month equally split amongst the 10 chosen aristocrats for that month. The positions are never trimmed or sold and all dividends are reinvested back into the issuing stock. People’s United (PBCT) was removed from the portfolio in April as the company was acquired by M&T Bank; the value of the position was reinvested equally amongst the 10 chosen aristocrats for April. Here are all of the positions: the current market value; capital invested; total return; and allocation as of August 25th.
|
TICKER |
MARKET VALUE |
CAPITAL INVESTED |
TOTAL RETURN |
CURRENT ALLOCATION |
|
AMCR |
336.34 |
300 |
12.11% |
2.51% |
|
AOS |
187.36 |
200 |
-6.32% |
1.40% |
|
APD |
554.74 |
500 |
10.95% |
4.14% |
|
ATO |
753.30 |
600 |
25.55% |
5.62% |
|
BDX |
442.15 |
400 |
10.54% |
3.30% |
|
BEN |
184.28 |
200 |
-7.86% |
1.37% |
|
CAH |
438.68 |
300 |
46.23% |
3.27% |
|
CAT |
112.67 |
100 |
12.67% |
0.84% |
|
CTAS |
257.14 |
200 |
28.57% |
1.92% |
|
ECL |
730.85 |
700 |
4.41% |
5.45% |
|
GD |
617.15 |
500 |
23.43% |
4.60% |
|
HRL |
717.28 |
600 |
19.55% |
5.35% |
|
IBM |
1,192.17 |
1000 |
19.22% |
8.89% |
|
ITW |
106.15 |
100 |
6.15% |
0.79% |
|
KMB |
136.54 |
100 |
36.54% |
1.02% |
|
LOW |
232.74 |
200 |
16.37% |
1.74% |
|
MDT |
753.74 |
800 |
-5.78% |
5.62% |
|
MMM |
1,195.39 |
1300 |
-8.05% |
8.91% |
|
PBCT |
200 |
-100.00% |
0.00% |
|
|
PPG |
437.47 |
400 |
9.37% |
3.26% |
|
ROP |
97.41 |
100 |
-2.59% |
0.73% |
|
SHW |
323.57 |
300 |
7.86% |
2.41% |
|
SWK |
450.83 |
600 |
-24.86% |
3.36% |
|
SYY |
559.61 |
500 |
11.92% |
4.17% |
|
T |
98.03 |
100 |
-1.97% |
0.73% |
|
TGT |
221.12 |
200 |
10.56% |
1.65% |
|
TROW |
696.69 |
700 |
-0.47% |
5.19% |
|
VFC |
807.42 |
1000 |
-19.26% |
6.02% |
|
WBA |
401.70 |
500 |
-19.66% |
3.00% |
|
XOM |
369.18 |
200 |
84.59% |
2.75% |
|
TOTAL |
13,411.70 |
3.17% |
Here are the 10 dividend aristocrats chosen for the blended strategy for September. The table below shows potential undervaluation (column Valuation) and the expected growth rate (column EPS + Valuation) for each of the 10 chosen aristocrats. The data is from August 25th so the current dividend yield may differ slightly from the stated yield.
Created by Author
Performance Review
The 10 chosen aristocrats for the most undervalued strategy are up 0.97% in August and trailing NOBL by 1.36%. The fastest expected growth strategy selections are up 4.32% and beating NOBL by 1.99%. The blended strategy is up 2.96% this month and beating NOBL by 0.63%. 2 of the 3 strategies made excellent selections in August and are performing far better than NOBL. However, the strong performance doesn’t always convert to the buy-and-hold portfolios immediately. I still believe that a buy-and-hold approach is the optimal investing method for these strategies and performance should be measured over longer periods of time.
Below are the partial returns (inclusive of dividends) through August 25th for the 10 chosen aristocrats under each strategy last month. The best selections are: Albemarle (ALB) +21.03% and Lowes (LOW) +10.69%, both posting double digit gains thus far.
|
TICKER |
MOST UNDERVALUED |
FASTEST GROWTH |
BLENDED |
|
ALB |
21.03% |
||
|
APD |
8.05% |
8.05% |
|
|
BEN |
-0.29% |
||
|
CLX |
5.10% |
||
|
CVX |
0.51% |
||
|
ECL |
3.49% |
3.49% |
|
|
IBM |
2.44% |
||
|
LOW |
10.69% |
10.69% |
|
|
MDT |
-0.41% |
-0.41% |
-0.41% |
|
MMM |
-0.34% |
-0.34% |
|
|
NUE |
6.56% |
||
|
PPG |
2.22% |
||
|
SWK |
-2.35% |
||
|
SYY |
1.76% |
||
|
TGT |
2.52% |
2.52% |
|
|
TROW |
2.36% |
2.36% |
2.36% |
|
VFC |
-1.41% |
-1.41% |
-1.41% |
|
WBA |
-7.12% |
||
|
XOM |
2.23% |
||
|
AVERAGE |
0.97% |
4.32% |
2.96% |
|
NOBL |
2.33% |
2.33% |
2.33% |
|
ALPHA |
-1.36% |
1.99% |
0.63% |
Here is a comparison of the buy-and-hold portfolios and the individual monthly selections for each strategy. As you can see the buy-and-hold portfolios are still performing much better than if we bought and sold the 10 chosen aristocrats each month. The strong results for August did shift these returns a bit and now the blended buy-and-hold portfolio is once again performing better than the individual monthly watchlists. A buy-and-hold approach is a much more tax friendly investing strategy.
|
Type |
Most Undervalued |
Fastest Growth |
Blended |
NOBL |
|
Individual |
0.32% |
7.66% |
7.60% |
1.87% |
|
Buy-and-Hold |
10.91% |
8.05% |
7.86% |
1.87% |
|
O/U |
10.60% |
0.38% |
0.26% |
0.00% |
Final Thoughts
I personally believe each of the 3 strategies outlined above can theoretically beat the dividend aristocrat index over a long period of time. These strategies are based on simple principles of valuation and expected returns, and they are easy to understand and implement. Investors should keep in mind that selecting individual stocks carries more risk than investing in an index. The simplest and possibly the safest way to invest in the dividend aristocrats is to purchase shares of NOBL. The fund finished 2021 with a fantastic return and has an annualized rate of return of 10.50% since inception.
The dividend aristocrat data in the images of this article came from my live Google spreadsheet that tracks all of the current dividend aristocrats. Because this data is updated continuously throughout the day, you may notice slightly different data for the same company across the images.
PM Images
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